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C h a i r m a n ' s

Vol.322024.4.30

C o l u m n

The End of Negative Interest Rates
and Real Estate trends
Bank of Japan’s Governor Ueda declared the end of
the negative interest rate on March 20. As service
providers, we believe there will likely be some impact
on real estate fund market.
First off, the Japanese yen is becoming even weakerdespite a shrinking interest rate difference between theU.S. and Japan. In terms of GDP, Japan has fallen to 4thin the world after being overtaken by Germany. Perhaps
this result is a matter of the country’s inability togenerate income, rather than simply an interest rate
matter. What’s also unnerving is that the Bank of Japanis discontinuing its purchase of ETFs and J-REITs, which
it had previously undertaken during its negative interest
rate policy.
Meanwhile, U.S. FRB’s Chairman Powell has forgone
lowering interest rates at the last several meetings
amidst growing pressure. Rather than lowering rates tocombat a struggling economy, economic data shows themarket is actually growing. It seems the central bank iswaiting to see further proof that inflation is contained.
According to data released by Freddie Mac on April 4,
the average 30-year fixed rate mortgage was 6.82%. At
such high rates, it would be difficult to mortgage acondominium through a financial institution without aforeseeable higher income or salary.
In other news, Aozora Bank is in serious trouble withan expected loss of 28 billion yen for the latest fiscal
year resulting from bad debts on U.S. commercialproperties. Overall, the situation is shaky for property
owners who may have to pay higher interest than rental
income. The market decline is particularly pronounced

for the U.S. where remote work has become normal,
which has adversely affected offices and adjacentcommercial buildings. As a result, property values aretaking a hit.
In Japan, market conditions during and after Covid
have been night and day. During Covid, hotels took adirect hit, resulting in high vacancy rates. For those thatused high leverage, the strategy was to wait and see
until Covid settled down. Inbound tourism is surging
again, resulting in high occupancy for hotels. Post-Covid,
workers have largely shifted from WFH back to theoffice.
As an example of rising property values in certain areas,a vacation home with maid quarters in Karuizawa havebeen selling in the 300 to 500-million-yen range (Nikkei
Morning Satellite).

Although Japan has ended its negative interest rate, it’sunlikely that rates will increase like the U.S., so CAP
rates are much higher. Property values seem low inrural areas, and in stark contrast, some Minato Ward
properties are listed at a whopping 13 million JPY pertsubo (~3.3 m2).
by Kazuhiro Matsuzawa, Chairman

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

～TheInnovation Speed Quality

latest in alternative investments～

J a p a n

R e a lVol.322024.4.30

E s t a t e

Keeping a close eye on lending rates
For this month’s real estate topic, I asked the asset
manager of a REIT.

-- Any recent changes in the real estate market?
There isn’t anything significant that comes to mind, butinterest rates have gone up. Since TIBOR has risen, both
domestic and foreign investors are cautious about
forward commitments.

-- I’ve heard that REITs are finding it difficult to acquire
properties.
Long-term interest rates have been rising for a while, so
asset types that rely on long-term financing are seeing ashrinkage in market cap. Implied cap rates are getting
bigger than actual cap rates as well. We’re keeping aclose eye on interest rates.
With the BOJ’s fiscal policy change to correct adrastically weakened yen, it seems that REITs are
finding it difficult to acquire properties, especially assets
like logistics facilities that require long-term financing.
The capital market metric of implied cap rates are insome cases becoming higher than actual cap rates(more on “implied cap rate” in December 2023 article).

TIBOR, the short-term interest rate is climbing as well,which is making both domestic and foreign investors
cautious about forward commitments on properties.
After announcing the end of the negative interest
rate in March, Governor Ueda has recently implied “anadditional rate hike.” Since the BOJ’s fiscal policychanges on interest rates have tremendous impact onreal estate investments, it is crucial to keep a close eye
on any developments.
by Shigeru Hirai, Business Management Group

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

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S e c u r i t yT o k e n

The growing possibilities of theSecurity Token
The security token is a token issued on theblockchain and used to fund-raise. In recent years, realestate-backed
security
tokenshavegrown
tremendously in total issuance and becoming morefamiliar.
As of now, market players like real estate funds areprimarily tokenizing Japanese Depository Receipts and
TK investments, but in recent news, Marui department
store began issuing tokenized bonds to Epos Cardmembers, with a portion of interest paid out as Epospoints. While many of these products are experimental,
the use of security tokens are expected to grow.
For example, investments in buy-out funds andventure capital funds are only available for professional
investors, but if an investment partnership (LPS) were topurchase the shares and subsequently tokenize those
LPS shares, individual investors would theoretically beable to invest in products typically reserved for
professionals. That would be something interesting.

Vol.322024.4.30

Another idea might be to tokenize train lines that areon the brink of becoming defunct. If the issued token iscombined with an NFT gift to a fanbase of locale-specificrailroads and trains, such a system may work. It gets mevery excited for such possibilities.
Meanwhile in the U.S. where the security token
market is advanced, an NBA basketball player
securitized his salary and sold them as security tokens.
In this case, the tokens are another way for players andfans to connect. If the Dodger’s Ohtani were to tokenize
his salary, I am sure it would be immensely popular.
The security token itself is simply a way to fund-raisethrough blockchain. However, in Japan, the financial
instruments and exchange law and tax law place many
restrictions on this new product, which likely causes
many issuers to simply fund-raise through traditional
means. Because the issuer can potentially rally theirfans and use the security token as a marketing tool for
their products, it would be exciting to see suchpossibilities unfold in the future.
by Jun Yoshioka, ASA Advisory

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

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Ta x

Vol.322024.4.30

U p d a t e

National Tax Agency’s Q&Arevisions regarding the InvoiceSystemOn the National Tax Agency’s website, a Q&A for the
invoice system has been available for a while and wasrevised in April. Over 6 months have passed since thesystem began last October. We hope that yourcompliance has gone smooth thus far.

The revision combines all FAQs into a single Q&A, which
includes the 2024 tax reform measures for a total of 23
additional questions answered. Any previously
answered questions have been revised as well, so it may
be worth taking a second look. Here we explain one
example of a frequently asked question.

In the 【example】below, although A, B, C are all statedas rounded consumption tax amounts based on
separate contracts, this is solely for reference purpose.
The total consumption tax amount for these separate
contracts does not need to match the 【example】redoutline’s total consumption tax amount. Thus, even if
separate consumption tax amounts for each contract iswritten, if the 【example】blue outline is written, therequirements for consumption tax disclosure on thequalified invoice are met.

【Example】Excerpt from NTA website “Q&A question66: Purchase tax credits for consumption tax under thequalified invoice retention requirement”＜ Question 66: Issuing qualified invoice based onmultiple contracts＞
The general rule allows rounding of consumption tax
amounts only once for each tax rate per qualified
invoice. Although very detailed, we’ve received
numerous questions on whether the received invoice isapplicable under the qualified invoice rules.
For an invoice that includes multiple contracts, as the【example】blue outline shows, if the total sales
amount including tax for the taxable asset, tax rate, andimputed tax amount is clearly stated, the requirementsof having the “total amount excluding or including tax
for the transferred taxable asset for each tax ratecategory and the applicable tax rate” and “Consumption
tax totals for each tax rate” are satisfied.

by Sachie Aoki, Knowledge Group

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.

Aoyama Sogo Accounting Firm

～TheInnovation Speed Quality

latest in alternative investments～

F r o mt h eVol.32

2024.4.30

E d i t o r

To improve our work environment, ASA Group has themotto of “For anyone to work anywhere and anytime.”
Globally, there seems to be publicly listed companies
that are enforcing a return to the office, but ASA istrying to create a standard that is the opposite.
In other news, the construction of the TSMC factory inKumamoto, Japan is creating a semiconductor chipboom. The company is making progress with their U.S.
factory as well. The difference however seems to bethat construction was smoother in Japan, partially due
to the Japanese construction workers working day andnight to complete the project according to schedule. We
hope this sort of corporate excellence can set an
example for other companies and local revitalization
efforts in Japan.

(image: TSMC website)by Jun Murata, Corporate Officer

Copyright(c)2024 Aoyama Sogo Accounting Firm Co., Ltd. All rights reserved.